Creating US Territorial Tax System Complex, Tax Foundation Says

by Mike Godfrey, Tax-News.com, Washington

03 August 2017

With a move to a territorial tax system a key Republican proposal for tax reform, the Tax Foundation has warned that lawmakers need to carefully consider how such a system would work for the United States.

The nonpartisan tax policy think tank said that there is broad agreement that the current system used in the US, a worldwide tax system, is broken. This system subjects resident corporations to corporate tax of 35 percent regardless of the location of those earnings. Foreign earnings are not taxed until repatriated to the US, but this discourages companies from doing so and they build up profits outside the US.

The Tax Foundation said that a territorial tax system, if not well-designed, could be complex and could easily be subject to base erosion.

"It is really only possible to accomplish two of these goals at the same time," said the Tax Foundation. "US lawmakers will need to balance these competing goals if they decide to enact a territorial tax system."

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